If Gen-Y cannot afford to buy Boomers' houses at bubble-level prices, then what will keep housing prices at these elevated levels?

Mish recently posted excerpts of a Brookings Institution study on changing generational values: How Millennials Could Upend Wall Street and Corporate America. The gist of the report is that Gen-Y (Millennials) view money, prestige, adversarial confrontation and managerial methods differently from the Baby Boom and Gen-X generations, and that this set of values will change Corporate America, the economy and the culture as Boomers exit managerial positions and their peak earning/spending years.

Though we have to be careful in characterizing tens of millions of individuals as all reflecting one set of generational values, the basic idea is simply one of context: people who grow up in a specific milieu are naturally prone to sharing broadly similar perceptions and values.

The Brookings authors claim that Millennials do not favor the adversarial style of the Boomers (competition and confrontation as means of advancing one's cause/position) nor do they place great value on luxury goods as evidence of exclusivity. They actively distrust/loathe the banking sector and are financially conservative, preferring cash to investing in Wall Street.

Asked to choose their ideal (corporate/state) job, their choices reflect preferences for a mix of security, idealism and technology. The big flaw in this career questionnaire (as far as I can discern) is that it did not offer the alternatives of self-employment/ entrepreneurship. Anecdotally, it seems clear that there is a strong entrepreneurial drive in Gen-Y--for example, What I’ve learned in my first year as a college dropout.

One factor the report did not address fully is real estate/housing, which depends on bank-issued debt (mortgages) and the belief that a lifetime of paying a mortgage will magically result in financial security, based on the greater fool notion that someone in the future will be willing to pay more for an asset that hasn't changed either qualitatively or quantitatively (other than needing more maintenance as it ages).

This raises two issues: if Gen-Y cannot afford to buy Boomers' houses at bubble-level prices, then what will keep housing prices at these elevated levels? Answer: nothing. Without strong demand for housing at sky-high prices, valuations will drop to whatever level demand can support. That level can be far lower than conventional housing analysts believe possible because they are still extrapolating Baby Boomer preferences and earnings into a future which will be quite different from the housing bubble decades.

The second issue is a question: how much of the Boomers' housing wealth will trickle down to Gen-Y when they actually need housing, i.e. when they're starting families?

The answer may well be: very little. If Gen-Y is unwilling or unable to take on enormous mortgages to buy bubble-priced housing, we can project a housing market in which Boomers are unloading millions of primary homes as they seek to downsize/raise cash for retirement but there aren't enough Gen-Y buyers willing or able to buy these millions of homes at bubble valuations.

In this scenario, home prices must decline to align with Gen-Y's salaries (i.e. their ability to qualify for huge mortgages) and their willingness to shoulder bank-based debt.

If Gen-Y essentially opts out of the belief that financial security depends on buying a house with a large mortgage, then the U.S. housing market will have no sustainable foundation for price appreciation. Housing could easily decline by 50% in highly inflated markets.

The same dynamic will shred stock market valuations. If Gen-Y opts out of supporting the banks and Wall Street, the demand for Wall Street's products will plummet, bringing stocks back down to historical levels--once again, perhaps 50% of the current bubble valuations.

The funny thing about core values is that they are resistant to arguments such as "you should get a mortgage and invest all your money in Wall Street." Once people opt out of the fantasy that buying a house and entrusting one's capital with Wall Street leads to guaranteed financial security, no amount of cajoling or propaganda will change their values-based decisions.

For example, those who have decided to eschew debt will never take on debt, even if the banks (or the banks' pusher, the government) offer debt at 0% interest. Those who have lost trust in Wall Street or actively hate it and everything it stands for (neofeudalism, unbridled greed, the corruption and collusion of the revolving door between the state and Wall Street, etc.) will never change their minds and hand their money to Wall Street to play with.

If the primary assets held by Boomers (houses and stocks) both decline for these fundamental reasons, there may be relatively little wealth left to pass on to Gen-Y. There is a peculiar irony in this: if Gen-Y avoids bank debt/mortgages, buying conspicuous consumption luxury goods on credit and investing in Wall Street's scams and skims, this generational lack of demand for housing, stocks and luxury goods will effectively crash the sky-high valuations of these assets.

That will reduce the value of whatever generational wealth the Boomers have left to pass on. Since many Boomer households are currently paying for three generations--soaring college costs for their Gen-Y offspring, care for their elderly Silent Generation parents and their own expenses--how much wealth they will have left once Gen-Y is dominant is an open question.

These factors suggest a generational bet against banks, Wall Street, housing and luxury retail stocks. I am not recommending such a bet, mind you; it's just one potentially interesting speculative consequence of the changing of the generational guard.

Just watched JACK RYAN movie last night...How in the hell do TPTB let this stuff be created. This movie depicts exactly what is coming...Russians to collapse the dollar...that is the premise of the movie. I about fell of my ccouch when I listened to the dialougue. I am very surprised. This movie even goes as far to show how a "False Flag" will be used to distract the public. I am floored. Do I think it will be the Russians pulling the "False Flag"...nope. Who has a track record for the most "False Flag" events?

I would like to think he is right about the generational short, but I figure if he was any good at trading, he wouldn't be writing blogs. Besides, one good mind suffices and is generally better than dealing with a doppelganger.

As for real estate, there was an article here on ZH regarding the IMF warning of an international real estate bubble. In that article, the USA is shown to have a relative advantage in housing prices versus income. The market for housing may come from foreigners buying up US real estate.

China is a good example when people lose confidence in an asset such as the stock market. Thet used to have packed rooms of people sitting there staring at the big screen flashing their stocks.

Then came the crash.

Now most Chinese call the stock market a "Black Hole" and do not go near it. Volumes very low on Shanghai index and very few people pay attention to it anymore. All those rooms with the Big Screens are now quiet...empty...or shuttered.

I would like to think that markets are free and they go up and down based on market forces rather than being controlled by technocratic central bankers and governments. What I would like to think and what I have to think are two different things. What I have to think is that markets go up and down at the discretion of Tecnocratic central bankers, governments and ever consolidating global corporations.

Do I believe that the next generation of central bankers, governments and corporations will be any different than they are now? no, I have to extrapolate the trend of ever consolidating centralization of power to it's logical conclusion.

I have given this generational difference thing some thought. There is definitely a paradigm shift that is occuring. The boomers are more likely to think of governments as being benevolent as they bought into the ponzi early and are naturally it's biggest group of beneficiaries. X and Y are being forced to buy in late and will likely view governments as being malevolent because they will only pay into the ponzi. Now that governments have such high levels of command and control over economies I don't see how this translates into collapsing markets.

I usually like CHS's writing but his views about deflation are wrongheaded IMO. Markets would go up and down based on fundamentals as Mish and other deflationists say if we had real money but we do not. We have fiat money. When reading comments about deflationary death spirals and shorting markets makes me wonder if the authors fully grasp the concept of what fiat means. I can't help but wonder if they are confusing a real money economy and one that operates by decree.

You must read Jim Rickards Currency Wars. He War Gamed this EXACT scenario at the freakin Pentagon. In his book, Russia holds Europe hostage over Nat Gas, breaks the dollar by demanding payment in the new Russian currency which is backed in Gold. This was in 2009. That Jack Ryan movie is a total ripoff on his book. He was spot on, and the Pentagon knows all about the consequences of this strategy - yet they push full steam ahead. Something really really stinks about all of this. It's all very scripted, but we all know that -

"Mr. Dodd, we operate here at the Ford Foundation under directives which emanate from the White House...We operate and control our grant-making policies…as follows: We shall use our grant-making power so as to alter life in the United States that it can be comfortably merged with the Soviet Union."

i actually watched it last night myself. I laughed a few times and said something like 'no fucking way' and she asked what it was, and I said this is axactly what is happening right now, obviously the movie was written probably 2 years ago, but its crazy how accurate it was. Most people won't see past the " 'Murica, fuck yea " propaganda factor though. Before watching it, when my wife asked what it was about, and i told her it is warfare state, police/spy state propaganda. It ended up being an easy way to explain what is going on with Russia right now

that may be true, but eventually other countries are going to stop trading us real things for pieces of paper with numbers written on them, and all those dollars we export are going to come flooding back to us, and in that case it ain't gonna matter what the fed does, its zimbabwe time

I am guessing that some US cities will do just fine re high-end condos & housing, as things economically decline and/or get more violent in places like Mexico, Venezuela, Colombia, Argentina, China, Russia and even Brazil (note three BRIC countries).

I won't invest, but I'll trade. We moved from a city to a village, sold the city house for a $30K loss I could cover with equity (25% down) and savings (reserves = mobility); nice house but lousy investment. This time, bought small, payoff in four years. Then , if we have to move, I can sell for whatever or rent it out (or have it moved ;-) Manufactured, double-wide 1600sf, 0.4 acre. I do believe I am avant garde for the late boomers; no trophy home for me to saddle my kids with to solve. They can share it as a vacation home, move it to wherever on some nice land they prefer as shared vacation place, sell as is, or adjust their inheritance by taking possession.

We will return to the 1800s where we belong - 200 years of fake bubbles. (At least our food will be more high quality than the crap chemicals that now pass for food...if you have any food of course) learn to grow a garden!

I'm growing a good bit of my own food right now. I don't see it so much as hard work as it is time consuming. My spring/summer garden comes in right at the same time as my fruit. I'm spending all of my free time every day caning and preserving. By months end I suppose it will be pretty much over, but for now it seems never ending. Yesterday I caned 3.5 gallons of black eyed peas (14 quarts). Right now I'm picking and processing lima beans. I've got pole beans that are no doubt going to waste. Corn needs picking and canning, pronto. Potatoes, ditto. I've still got several batches of apples to pick and process. I did make some killer apple butter, peach/nectarine jam and sour kraut.

I don't work and spend all the time I have on my property so I can keep up with it. If I had a job, or friends, or family, it wouldn't be so easy to keep up. OTOH, I've got some health issues that leave me totally debilitated, or at 50% efficiency, at least half the time, so I guess that's a wash.

All in all a very interesting and mind expanding experience. As time goes on I see I'll switch to easier to grow and process products. For me, bush beans are so much easier to grow and process than pole beans. English peas are a huge amount of effort for little product. Ditto lima beans. OTOH, I can process a mountain of black eyed peas with very little effort. Same with corn, broccoli, cabbage, onions, etc.

It is all very interesting and if I end up off the mini farm and back buying from the big box folks it will give me a whole new perspective of just what it is I'm paying for.

When the Fed governors explain daily to you why your middle class standard of living must decline as the economy bounces along the bottom of the tub, here’s the real reason for the prediction: it’s wealth transfer; the construction of a world oligarchy.

It's all the same problem; that's what's happening to housing.

As Gabriel Black explained yesterday: “This policy of an open spigot to the banks has benefited the ultra-rich and rich exclusively. While the global economy grew at the rate of 2.9 percent in 2013, those owning more than $100 million dollars in assets saw their wealth increase by 19.7 percent. Again, this excludes the wealth that a capitalist may have through his own company’s stock.”

Global financial private wealth grew by 14.6 percent in 2013, according to a new report by The Boston Consulting Group. The surge, concentrated in the hands of the billionaires and millionaires of the world, has been driven by the policy of the Obama administration and other governments to pump cheap cash into the hands of the major banks and stock markets.

Private financial wealth, as defined by the Boston Consulting Group, “includes cash and deposits, money market funds, and listed securities…life and pension assets, and other onshore and offshore assets.” However, it does not include “investors’ own businesses, any real estate, and luxury goods.”

Total global private financial wealth grew to $152.0 trillion in 2013. The percentage increase was almost double the 2012 increase of 8.7 percent.

The growth in wealth was driven, overwhelmingly, by the inflation of the stock market. Of the total growth of $19.3 trillion, $15.2 trillion came from already existing assets and only $4.1 trillion came from newly created wealth. The entirety of the growth in already existing assets came from “equity performance.” This growth actually made up for losses in the performance of bonds.

The world’s actual GDP expansion rate in 2013, 2.9 percent, tells a completely different story. Throughout the world, economic growth has slowed. Wealth, primarily concentrated in the hands of the super-rich, has increased at a rate that is five times faster than the actual growth of the economy.

The data point to an unmistakable trend: the global economy is not in a recovery.New wealth in the world has primarily been an increase in the paper value of existing assets, not the expansion of production.

This process has been driven by the policy of quantitative easing and low, and even negative, real interest rates…

Meanwhile poverty, hunger, homelessness and joblessness are on the rise throughout the world. In Britain, a new report estimates that a third of children in Britain will live in poverty by 2020. The 85 richest people in the world have more wealth than the bottom half of humanity, 3.5 billion people…

JR, great reporting. One thing I have never been able to understand -- other than maybe gamesmanship and/or sociopathy, why do they want even more financial wealth? Cleary I do not understand the very rich, yet I have spent some time among some:

Why is it that so many of those who are very rich (let's just say the top 0.1%, just to sketch a picture here) have to get such much MORE? Can they not buy almost anything they want? If a rich Texan can buy a rural mansion in the Hill Country (with 1000 acres), why would he want 3000 acres? Why buy a new Gulfstream every other year? Do you need that Ferrari anymore after you have bought the Lambo? When is enough, enough?

***

In my case, there are few things I want now. And I am not in the 1%, much less the 0.1%.

I recon' there are 2 types of elites. One has come to amass incredible wealth and will do anything to keep it, including selling out their own countries and anything else required. The other, more nefarious class is spawned from the devil and is often 3rd generation occultist. To the latter, money is simply a tool to complete the multi-generational plan of one world order under Lucifer. These scum hold ultimate control over the "2nd tier" of rich and most likely provide a simple ultimatum- "support us and we will allow you to keep your wealth and power, or we will destroy you and give your wealth to someone more to our liking." ( Here's lookin at you Soros) this symbiotic relationship has allowed the evil to spread their chaos over the whole chessboard through proxy. It's brilliant really; we simply can't focus our attention on so many fronts of attack. Our media, food, education system, healthcare, and banking system are all being used as weapons, which prevents people from focusing on any one. Domination indeed.

As the wealth of the 0.1% skyrockets, DoChen, it is important to see the differences in these rich men, IMO. Some obviously just live for more and more for luxury – more and more homes et cetera; others, and this is the danger, are using this wealth to create a tyranny over governments, to return humanity to a feudal system whereby they can enjoy dominating others to serve them while they rule.

“You are led to the question of where is this river flowing? Where's it going? … They're not accumulating it at all. What are they spending it for? The answer may surprise you. They're not buying more yachts and mansions with this money; they've already got all of those they possibly want. … That's not it. When a person has all the wealth that you could possibly want for the material pleasures of life, what is left? Power. They are using this river of wealth to acquire power over you and me and our children.

“They are spending it to acquire control over the power centers of society. The power centers are those groups and institutions through which individuals live and act and rely on for their information. They are literally buying up the world but not the real estate and the hardware, they're buying control over the organizations, the groups and institutions that control people. In other words, to be specific, they are buying control over politicians, political parties, television networks, cable networks, newspapers, magazines, publishing houses, wire services, motion picture studios, universities, labor unions, church organizations, trade associations, tax-exempt foundations, multi-national corporations, boy scouts, girl scouts, you name it…this is where those people have been for many decades spending this river of wealth to acquire operational control particularly over those institutions and individuals, those organizations that represent opposition to themselves….”

Ok Gen-Y, suck it up an stop feeling sorry for yourselves. Pay your social security taxes and stop whining. I've got a new RV on the way and I just don't want to have to listen to your whining while I'm out enjoying my golden years.

I try to avoid generational class wars or whatever they are called but as a gen-x'er I can't stand it when boomers start giving lectures about politics. That really frosts my ass. But if you watch the OTA TV commercials it suggests a lot of them aren't doing that great. The elderly boomers are targeted by the TV people for falling down the stairs, catheters, incontinence products and *reverse mortgages*. Fred Thompson and Henry Winkler console the wary not to worry - reverse mortages are regulated by the fed gov LOL! Then like you say there are a few commercials sprinkled in for luxury RVs. It seems I've developed a morbid fascination with how fucked up this world is.

I would not take RE advice from this blogger. He believes that the twenty-five cent 1970 two-by-four is still worth the same amount today. He probably lives in a tent and smokes his cigarettes backhanded.

These kids (let's fucking say the truth for what it is - they refer to themselves as 'kids' at large) may be 'forward-thinking' types, but they're still shackled to plastic, in all of its incarnations.

A lot of them still don't know how and where 'money' (have fun with your 1s and 0s kids) comes from - thus they don't find the root cause of many of the world's problems.

Don't worry, Joe Biden assured me that if we just pass amnesty the new immigrants from south of the border will buy all your luxury properties at top dollar prices using the money they earn from doing all the STEM jobs they're going to create.

It's been proven time and time again that central banks can make the sheep buy anything that central banks demand from tulip bulbs to mcmansions to stawks.

And the central banks can't resist devaluing the fiat by printing moar and moar.

Finally, the youngest, dumbest sheep currently crave new, shiny trinkets and gadgets more than their parents' generation by a factor of ten. Therefore, the argument advanced in this article seems unlikely.

It seems to me that the ones who rejected wall st and a consumer lifestyle arent the ones who hate wall st. I rejected wall st. and consumerism. I calmy sit here waiting for the show to close. Just keep stacking.

The ones who are "mad" arent mad out of their rejection of wall st. Rather, they are mad because they embrace consumerism and wall st greed, and cannot participate at the level they see themselves deserving of. The "rejection" they project is merely a cover for this jealousy.

I do not think the dollar will survive long enough for any of this to matter.

Imagine what happens if you wake one morning and no one wants dollars. At that point we would still have our property and no debt. The government is forced to create a new currency, one that has a gold component, like the Euro (before you laugh look at the Euro balance sheet, it has 10,800 tons of gold. that gold does not 'back' the Euro but it is an asset the ECB can use to defend the Euro.) The USA joins the rest of the world without the 'exorbitant privelege' (as deGaul called it). We are forced to export to import...just like all other countries have to do now.

As Robert Triffin observed in 1960, the reserve status enjoyed by the USA is a 2 edged sword. It allows cheap imports and borrowing because you can print the currency. The cutting edge is that you must give up your productivity. If you are a net exporting country then the rest of the world can't get your currency to use as a reserve.

When the dust settles after a currency collapse the USA will once again be forced to manufacture or at least produce something more than financial instruments to survive. This time it will have to compete with every other country on the planet on equal footing. Capital will follow cheap labor but will also go to where the brains are. Oil will go to where the gold is. No country will ever again be the 'reserve currency'. That idea will die with the dollar. It was a great deal while it lasted (great for the banks and government) but the price is too high. No country (like China) will want it because it condemns the country to a life of importing and ever increasing debt...I refer you to the national debt clock...that clock will never stop ticking until the dollar dies. No other country will want that clock ticking for their currency.

I predict to Euro is, for a short period, used as a reserve but after the dollar dies we will see other countries adopt the style of the Euro. Currencies will return to their best use...that of place keepers and units of acount. The idea that they are a store of value will be gone...gone with the dollarand gone with all the 'wealth' that paper supposedly claimed.

Look to gold as the premiere wealth asset. The ECB has gold on it's balance sheet market to market. When the dollar goes to zero, the Euro's gold goes to infinity in dollar terms. Suddenly things will have changed.

The various generations will have a clean slate. Best of luck to them. I hope they have their skills ready to face a new world of hungry competitors. My bet is on the USA in this new world but those Chinese and Germans and Russians and Viet Namese look ready to rumble too. It should be a good show. Make it clean fight and come out swinging. This time neither party will be laden with old rules that made real competition impossible.

Cities of today depend on critical mass of wannabes for their 'hipness' and the sense of 'the good life'. Current economics risk gutting the middle class. In that case cities will become seathing sewers of broken dreams and broken homes. Rich will wanna get as far away as possible. Make gleaming forbidden cities for the rich, like Versailles once was. Where? If you have to ask, you can't afford it :)

CHS makes some decent points but his Puritanism is showing. In a free market under the rule of law, greed is actually a good thing. I'd prefer billionaires who chase after another billion by investing in producers of useful goods and services that people are willing to pay for, as opposed to billionaires who decide they have enough and sit on their cash.

The problem isn't Wall Street greed, it's Pennsylvania Avenue statists picking winners and losers in the market and chipping away at the rule of law.

If and when it does happen, it will be their own fault; the grey outlook on self greed and accumulation of assets in the paper world may or may not change in my life time but one thing is for sure; those newbies who can add will see there isn't enough of them to keep the status quo - stands to reason; change is on the horizon. What that will be, who knows but come on, anything else has gotta be better? IMHO

Some of us boomers who were adults in the late 60's remember when few people used credit cards of any kind. Gasoline credit cards were popular along with some of the big department stores. People mostly used cash or wrote checks. Some local merchants let you run monthly or weekly "tabs". Payable in full but usually no interest. My dad had a monthly tab at the gas/convenience store across from my high school. Small shops and stores were virtually all family owned in my small home town.

I was 21 and in the USN when I got my first real credit card--a BankAmericaCard with a $200.00(two hundred) credit limit. :) VISA wasn't yet born.

Yeah, it was a different time, blah blah. Among other things, more people "saved" to buy a car, TV, furniture. Down payments were larger and terms different back then. Credit was scrutinized more carefully than now....imo.

The U$D still had an indirect link to gold. Lending back then was a far different animal than now.

The new generation may not accept the notion that a mortgage and stock portfolio will ensure eventual wealth, but if they spend on other things, won't the party continue without them? Determined and successful entrepreneurs -- including the successful drug-dealer types -- will buy the mortgages and the securities. Remember Joe Kennedy and how he accumulated some of his vast wealth.

Wealth is a form of control over others and one's environment (i.e., security). If many in the new generation give up the mortgage/security path, how do they maintain a sense of control over their future? And more narrowly, what do the males do to create an image of control and security that will attract the most wanted females?

Seems like the US government propaganda machine via the media and public educartion system is a victim of itd own success. All this state propaganda fed to kids about AGW, socialized medicine, raising taxes, america should no longer a superpower, tiny houses are so great, etc. is working...

Did it ever occur to the elites/gov that if Generation Y bought into their propaganda on tiny houses and accepting lower living standards. it will kill property values especially for larger homes? Not to mention the loss in property tax revenue... ROTFLMAO

Do the math: When the boomers start retiring in droves, like umm… 1945 + 65 = 2010… and it really kicks in at 2015 (see demographic charts for 1950) then what will they do? Still dabble in the markets?

AYFKing?

And what are they going to do with their houses when they don't want to shovel snow and then die?